Brokers have been warned that taking part in competitions where insurers give prizes for meeting certain targets creates serious conflicts of interest.
The Fold Legal Senior Lawyer Jaime Lumsden Kelly says entering a competition in which insurers or underwriters reward broking staff with prizes for meeting certain volume goals for quotes for business placed can easily lead to breaches of the broker’s Australian Financial Services licence, regardless of whether they win a prize or not.
“Participating staff could be motivated to prefer their own interests to those of their clients and brokers who give personal advice to retail clients, could also breach the best interests duty,” she says.
“The options are to either avoid it altogether and not allow broking staff to participate or to manage it. When licensees tell their brokers to avoid it, they should keep reminding them and inform the insurers they deal with as well.”
If a licensee opts to manage it instead, they must ensure they meet disclosure and best interests duty obligations.
“The potential for staff to win prizes needs to be disclosed in the Financial Services Guide for retail clients and in the disclosures you make to wholesale clients. All disclosures must be timely, prominent, specific and meaningful,” Lumsden Kelly says.
“To meet the best interests duty, implement a policy that broking staff must recommend insurers and policies that are appropriate for the client, without any regard to the prospect of winning a prize. Put it in writing and periodically check that it doesn’t happen.”